Young people have the highest debt levels since the recession, according to the latest numbers from the New York Federal Reserve Consumer Credit Panel. Despite reducing their spending, total debt among 19-to-29-year-olds exceeded $1 trillion at the end of last year.
Unsurprisingly, student loans comprise most of this debt, totaling $378.9 billion among this vulnerable group, and increasing 109 percent since 2009. Mortgage debt follows closely behind it at $362.9 billion. New mortgages among this younger demographic are still dragging, falling below early 2000 levels, and to about half of pre-recession levels. Held back by their student loan payments, young people are clearly waiting longer to buy their first home.
With all of this borrowed money, delinquency is a real concern, particularly for millennials and Gen Z-ers. The report finds that debt that is 90-plus days delinquent for student loans surpasses all other loan type categories by a long shot, and aggregate student debt was more than 11 percent delinquent by 90-plus days.
At some point, third party collections agencies are knocking on these borrowers’ doors, and their credit scores are in big trouble. The trend could potentially be devastating for millennials and Gen Z-ers trying to get ahead in life. What a shame if delinquent loan repayments were the final obstacle standing in the way of major milestones like buying a house or finding their dream job.
Lower credit scores mean more interest paid over the life of a mortgage loan, which adds up quickly on a 30-year loan, and can make payments a living nightmare. It also means higher rates on their auto loans, credit cards, and well, everything else that requires a loan, feeding this vicious cycle.
It can even cause a candidate to get passed up on a job or promotion. It’s not uncommon for employers to run credit reports on candidates, and low scores are associated with irresponsibility and a lack of trustworthiness. Young millennials, aged 22-28, have an average credit score of 652, which is not exactly stellar by credit analysts’ standards. If default rates rise, this will only drop to lower levels.
College bound high schoolers who are “following their dreams” are best advised to take a look at the struggles that their millennial and older Gen Z counterparts face before they settle on a path that leads to a cycle of heavy debt and limited prospects. In Trump’s economy, opportunities abound for those who take them, and a traditional four-year degree isn’t always a prerequisite.
Brendan Pringle (@BrendanPringle) is writer from California. He is a National Journalism Center graduate and formerly served as a development officer for Young America’s Foundation at the Reagan Ranch.
